Are Obama’s Small-Business Lending Proposals Also About Health Care?

The Obama administration has gone public with the details of its initiatives on small-business lending, and they closely track what The Agenda reported today.

On the Small Business Administration side, the administration will ask Congress to raise the loan limit on the 7(a) lending program to $5 million; on the 504 program to between $4 million and $5.5 million, depending on the type of loan; and on the microloan program to $50,000. These caps are identical to those proposed in legislation by Senator Olympia Snowe, the Maine Republican, whose support is crucial to the administration on another front — health-care reform.

In addition, community banks will be able to borrow up to 2 percent of their “risk-weighted assets” in TARP money at 3 percent interest (down from 5 percent) for five years. In exchange, banks will have to demonstrate how they plan to increase small business lending and they will have to follow up with quarterly reports.

Finally, microlending community groups in poor urban and rural areas that are regulated by the Treasury Department and known as community development financial institutions will be able to borrow money from the federal government at 2 percent interest for eight years.

A detailed White House summary of the small-business initiatives announced today is here. Our earlier report follows.

President Obama is heading to Maryland on Wednesday afternoon to announce new efforts to encourage small-business lending. It’s a gesture that seems calculated to accomplish two things: first, address criticism that his administration has done little to improve small firms’ access to credit and, second, to win over one Republican senator who is wavering on health care reform.

According to an administration official, the proposals would increase the caps for existing Small Business Administration loans and separately improve smaller banks’ access to funds from the Troubled Assets Relief Program. The Wall Street Journal reported on Tuesday that the administration hopes to lower the 5 percent dividend banks currently pay and offer other “to-be-determined incentives,” in exchange for a demonstrated commitment to small-business lending.

The changes to the S.B.A. program appear to be more settled. Another administration official said Mr. Obama would seek to raise the limit on S.B.A.-backed microloans from $35,000 to $50,000. The microloan program, which pairs small loans to disadvantaged borrowers with intensive technical assistance, truly meets the S.B.A.’s mandate to provide credit to those who can’t obtain it elsewhere, but it got little love from the Bush administration.

The Obama White House also wants to raise the maximum size of an S.B.A.-guaranteed 7(a) loan from $2 million to $3 million to $5 million, according to two people who have been informed of the administration’s plans. And it would appear that the administration has something similar in mind for the agency’s 504 program, in which the financing is split between the borrower, a conventional lender (like a bank) and a nonprofit community development company, which issues S.B.A.-guaranteed debt.

Mr. Obama is to make the announcement at Metropolitan Archives, a records-storage company in Landover, Md., northeast of Washington, which financed its warehouse in part with a $2 million 504 loan guarantee, according to Chris Crawford, president of the National Association of Development Companies, which lobbies for nonprofit 504 lenders. Metropolitan Archives, Mr. Crawford noted, is “looking for money to further expand their property, but they cannot do another S.B.A. loan under the current regulations” because $2 million is the most any business can borrow with an S.B.A. guarantee.

The S.B.A. has kept mum on the specifics of the plan. “They told me they’d like me to be there, and they told me I’d be very pleased with the outcome,” said Mr. Crawford. “They are determined not to steal the President’s thunder.”

Changes to the three programs would require approval from Congress. And as always, the devil is in the details. Lenders in the 7(a) program would like to see the portion of the loan guaranteed by the S.B.A., currently limited to $1.5 million, rise with the total loan size, said Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, a trade association. Nor is it clear whether businesses will be able to borrow up to the maximum in both the 504 and 7(a) programs, something they cannot do now.

And Connie Evans, president of the Association for Enterprise Opportunity, a microlenders’ lobbying group, worries that if Congress defines the microloan limit upward without raising the ceiling on the amount of money lenders can borrow from the S.B.A., they will wind up making fewer loans. Under the program, microlenders borrow money from the S.B.A., presently up to $3.5 million, and then loan that money to very small businesses.

What is striking about the S.B.A. initiatives is not just the size of the increases but whom they appear meant to impress. The new loan limits closely track increases proposed by Olympia Snowe, the senator from Maine who is both the ranking Republican on the Senate Small Business Committee and possibly the only Republican considering voting for Democratic-led health care reform.

In August, Ms. Snowe introduced legislation titled the “Next Step for Main Street Credit Availability Act of 2009,” which would raise the limit on 7(a) loans and most 504 loans to $5 million (and the S.B.A.-guaranteed part of a 7(a) loan to $4 million), and on microloans to $50,000. An earlier version of the bill, introduced in November 2008, proposed raising the limits on those 7(a) and 504 loans to $3 million.

At least one observer was not surprised. “Who is the one senator they need on health care reform?” a lobbyist who has followed the issue asked, rhetorically. “What number do you think they’re going to pick?”

“The administration is very, very aware that this is Senator Snowe’s top priority,” said a senior Senate Republican aide. “We’ve been pushing this with senior White House officials and the S.B.A. It was probably was of the first things that we brought up with the transition teams at the S.B.A. and Treasury.”

Others on Capitol Hill are now gearing up to be part of the solution. On Tuesday night, Senator Jeff Merkley’s office sent word to a Times reporter of legislation that “that could provide needed framework” for the administration’s effort to open up the TARP program to community banks. A spokesperson for the Oregon Democrat said aides were racing to finish the legislative language and hoped to introduce the bill “first thing” on Wednesday morning.

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